Wall
Street is collapsing not because of bad
mortgage debt or lack of
capital or over-leverage. Those are merely
symptoms. Wall Street is
collapsing because it deserves to collapse; it
needs to collapse in
order
for America to survive. The economist Joseph
Schumpeter called it creative
destruction, a system where outdated models
collapse to make room for
new
innovation.

Wall
Street of the past decade never really had a
business model as
much as it had a business creed: greed is
good; leveraged greed is
even
better.

The fact
that Wall Street is collapsing is a given. How
it survived
as long as it did under its corrupted model is
the question that will
be
debated in history books for the next
generation.

For
example, imagine a business model that bases
remuneration to
brokers on how much money they make for their
Wall Street employer
and not
one dime for how well their customers’
portfolios perform. A Wall Street
broker receives remuneration that rises from
approximately 30 to 50
per
cent of the gross commission based on their
cumulative trading commissions
with
zero regard to how well the clients’ accounts
have done. There is no
acknowledged internal mechanism in any of the
major Wall Street firms
to
gauge the overall success of the accounts the
broker is managing.

The
industry has been irreconcilably incentivized
to corruption just
as brokers have been socialized to silence.
The reason we are seeing
a
stampede this week into U.S. Treasury
securities is that much of this
money
belonged there in the first place, not in
esoteric mortgage backed
securities, junk bonds, commodity funds or
annuities backed by AIG.
Brokers put their clients “safe money” in
these unsuitable investments
because
their Wall Street employer dangled a seductive
financial inducement.
A broker
receives less than $1,000 in gross commissions
(“gross” meaning before
their firm takes their 50 to 70 per cent cut)
on $100,000 of longer
dated
Treasuries. Putting that same $100,000 in a
junk bond or mortgage-backed
security or annuity could generate $3,000 or
more. In other words,
the
financial incentive has created an artificial
demand. And, as must
inevitably happen, the true state of that
demand is just now catching
up
with the true glut of supply.

What would
be the incentive for Wall Street firms to
offer higher
commissions for some products over others?
Because on top of their
cut of
the brokers commissions, they receive
origination and syndication fees
for
the more esoteric investment products. These
firms so despised the
low-paying Treasuries that they replaced
Treasuries with Freddie Mac
and
Fannie Mae paper in mutual funds bearing the
name “U.S. Government
Fund.”
(This misleading practice and the fact that
billions of dollars of
public
money resided in these misnamed funds has
certainly played a role in
the
government’s decision to nationalize Freddie
Mac and Fannie Mae.)

Then there
is the insane model of bringing flim-flam new
businesses
to market. If we look at the people who are at
the helm of today’s
collapsing
Wall Street, they have shifted in their
chairs, but they are mostly
the
same conflicted individuals who brought
America the NASDAQ bust that
began in
March 2000 and evaporated $7 trillion of
American wealth. There is
no
longer any incentive on Wall Street to bring
about initial public offerings
of only companies that will stand the test of
time and create new jobs
and
new markets to make America strong and
globally competitive. There
is only
an incentive to collect the underwriting fee
and cash out quickly on
private equity stakes.

Next is
the corrupted model of housing a trading desk
for the firm
inside the same company that is supposed to
issue unbiased research
to the
public. For example, let’s say that XYZ
Brokerage buys a big stake
in ABC
Company on its proprietary trading desk (the
desk that trades for profits
for the firm) on Wednesday afternoon. On
Thursday afternoon, it could
almost guarantee profits for itself by issuing
a research report upgrading
the stock. Conversely, it could short the
stock on Wednesday and issue
a
negative report to drive down the price on
Thursday, also guaranteeing
itself a profit. Other than a fictional
Chinese Wall, there is absolutely
nothing to stop this type of public looting.

Now, ask
yourself this. With the multitude of other
ways that Wall
Street has to make money, why are they allowed
to have their own trading
desk while simultaneously issuing conflicted
research to the public.
After
the NASDAQ scandals that revealed Wall Street
issuing biased research
for
personal profit, why weren’t proprietary
trading desks and public research
issuance shut down at these firms. There are
plenty of boutique research
firms to fill the void. The only conclusion to
be drawn is what Europe
is
calling “regulatory capture” here in the U.S.
That’s a phrase similar
to
what Nancy Pelosi was calling “crony
capitalism” on Wednesday, September
17
before she decided to join the crony
capitalists at a microphone on
Thursday, September 18 to promise
bipartisanship on the mother of all
bailouts to Wall Street.

This
unintelligent design business model would have
cracked and
imploded long ago but for one saving grace: it
came with its own
unintelligent design justice system called
mandatory arbitration. Gloria
Steinem once called mandatory arbitration
“McJustice.” It’s really
more
like Burger King; Wall Street can have it
their way. In a system designed
by Wall Street’s own attorneys, arbitrators do
not have to follow the
law,
or legal precedent, or write a reasoned
decision, or pull arbitrators
from
a large unbiased pool as is done in jury
selection. Industry insiders
routinely serve over and over again. Had there
been ongoing trials
in
open, public courtrooms, the magnitude of the
leverage, worthless securities,
and
corrupted business model would have been
exposed before it brought
America
to the financial brink.

That Wall
Street and its Washington coterie are stilled
embraced in
regulatory capture and unintelligent design is
most keenly evidenced
by the
recent merger of Merrill Lynch, the
brokerage/investment firm, with
Bank of
America, the commercial bank and ongoing
discussions to merge Morgan
Stanley, the brokerage/investment firm with a
commercial bank. (Memo
to
Enemy Combatants Against Taxpayers a/k/a Wall
Street/Washington: this
new
model is the failed model of Citigroup. Why do
you hate America?)

Make no
mistake that what ever the dollar amount
announced next week
to funnel into an entity to buy bad debts from
banks and Wall Street
firms,
it won’t be enough. It’s a Band-Aid on a
malignant tumor. That tumor
is
Credit Default Swaps (CDS) with over $60
trillion now owed through
secret
contracts in an unregulated market created,
financed and owned by the
unintelligent design masters, Wall Street
firms themselves. (See “How
Wall
Street Blew Itself Up,” CounterPunch, January
21, 2008.)

There is
no sincere plan by this administration to help
America or
Americans. There is only a plan to slow the
financial collapse until
after
the November elections by throwing a
politically palatable amount of
money
at it and a plan to continue to blame it on a
housing bust.

If we, the
American people, allow this to happen, we’re
enablers to
the unintelligent design model. Before one
more penny of our taxes
are
spent on this ruse, we must demand a seat at
the table (I think Ralph
Nader
should occupy that seat) to discuss breaking
up Wall Street, crushing
this
model, innovating a sensible model that serves
the individual investor
and
deserving businesses, and promises our
children a future of more than
a
banana republic.

*
* * * * *
* *

Pam Martens worked on
Wall Street for 21 years; she has
no securities
position, long or short, in any company
mentioned in
this article. She
writes on public interest issues from New
Hampshire.
She can be reached at
pamk741@aol.com

SHARP
ANALYSIS! I am going to
google this gal, see if any otherof her astute scribblings exist
online! A Wall Street Cassandra,a Whistleblower, sees around
corners, insightful, delightful.Has the ring of truth.